KnowHow founder and property investment expert Bushy Martin explores the key property investment principles that will set you up for success in your wealth journey.
On Bushy’s Property WEALTH series on the Property Hub podcast, Bushy talked about the strategic principles to adopt to be successful in property investment. These cover property, lifestyle and finance, and need to be easily actionable, simple to understand, easy to implement, safe and affordable, and time effective.
Property investment strategic principle 1: Income for Life
Bushy explained that the ‘time-honoured and proven’ Income for Life investment growth strategy is key for creating freedom of choice.
“To sum up this strategy, you just need to use as little of your own money to secure as big an asset base as you can, as quickly as you can, and make it as affordable as you can, and then get out of the way and let time, the tenant, the tax office and capital appreciation grow your wealth and replace your income, so you can continue to build your career and focus on family, while your team of experts makes it all happen for you. This is the essence of creating the ultimate freedom of choice and time-release vehicle to do what you want when you want,” he said.
“However, it’s the degree of careful and exacting implementation of all the required interconnecting cogs, that will either make your investments run like clockwork or grind to a screeching halt if something is left out or assembled in the wrong fashion.
“For most people the road map is simple – to sustain your quality of life long-term, you need to replace your earned work income with passive investment income by accumulating high-growth, income producing assets, and then convert your capital to cash flow via ongoing tax-effective income streams when you decide to stop or reduce work. So the key focus here is growth first then cash flow.”
Property investment strategic principle 2: Wealth by Stealth
There are five growth phases that make up the Wealth by Stealth strategy – Activate, Accumulate, Accelerate, Amalgamate and Liberate.
“The first Activate stage, which can take anywhere from one to five years, is about saving and establishing your initial investment equity deposit. You can access available equity in your home, or save a minimum of 10-20% of your income and invest initially in low-cost, high-growth share index funds or similar, to grow your investment savings from zero to somewhere between a minimum of $100,000 up to $250,000,” Bushy explained.
“And this is often the hardest part because it’s the start that stops most people. The bank of Mum and Dad often come to the rescue here, by taking out a small equity loan themselves against their home as a gifted deposit to their children, which is a much better and far less risky approach than pursuing a family guarantee loan that effectively puts the parents home at risk if things go belly up.
“The next Accumulate and Accelerate stages, which take 15-20 years or more, are about taking your equity and/or savings deposit and buying or building high growth rental homes using borrowed funds to significantly leverage up your investment asset base and fast track the quantum of your net worth growth by between 3.5 to 10 times.
“Then comes the final Amalgamate, Liberate and Remunerate stages, where in the five year or so lead up to your stop work or work reduction date, you collaborate with your ‘golden circle’ team of your property specialist accountant, financial planner and independent property strategist and mortgage broker, to rationalise your high-growth net worth portfolio into a tax effective ongoing cash flow income stream.”
Property investment strategic principle 3: Capital Growth v Cash Flow
Your Freedom Numbers will determine whether you pursue a high growth investment strategy or a cash flow strategy.
“If your current investments are not forecast to achieve your nest egg number, then you need to go for growth. But If your current investments are forecast to meet or exceed your required nest egg number, then you need to focus on cash flow investments,” Bushy said.
“For example, if your ideal lifestyle income is $120,000, then your income-producing nest egg number is $2.4M based on a 5% net return. In other words, you need to create $2.4M dollars in income-producing assets to generate $120k a year in ongoing income. So if your current income producing assets (excluding the family home) are projected to fall short of $2.4M or more over your Breakfree Investment timeline, then you need to invest in growth properties. But if your current assets are projected to exceed the $2.4M nest egg number, then your next investment needs to focus on maximising cash flow.”
“And this growth versus cash flow distinction is important, as it guides you on what types of properties you need to invest in. If you’re going for growth, which is where the vast majority of investors are at, then the low-risk sweet spot for the highest growth properties with the highest rental and resale demand are existing or new build 3-4 bedroom homes with strong owner occupier appeal on blocks of land in tightly held lifestyle areas that are experiencing improvements in infrastructure, industry and incomes. Conversely, if you’re in the cash flow phase of your investment journey or your converting your capital growth portfolio to cash flow, then you need to focus on high-yielding rental properties that include residential units, apartments and townhouses or commercial properties.”